LGC announced today it has purchased the 52.1% of CALA Homes it did not previously own for £315m from fellow majority shareholder Patron Capital Partners, citing strong performance and revenue growth as reasons for the deal.
It said CALA Homes had performed strongly under its joint ownership with real estate manager Patron, with revenues growing from £241m in 2013 to £748m in 2017, and profits growing at a compound annual growth rate of 12% over the same period.
The total valuation of 100% of the equity in CALA Homes was £605m.
Legal & General took a 46.5% stake in CALA Homes in 2013. It said it believes the firm has attractive growth prospects under its continued ownership based on LGC’s long-term approach to investing and the “attractive market for housebuilding in the UK”.
Split opinion
UK housebuilders have split opinion among fund managers in recent months. Speaking to Portfolio Adviser in January, Investec UK Equity Income fund manager Blake Hutchins said he was wary of housebuilders generating unsustainable earnings and trading on artificially low price-to-earnings ratios.
“They are currently making unbelievably high levels of profitability and return on capital and I worry that is not sustainable,” he said. “We don’t own any.”
However, star manager Neil Woodford is a big fan of UK housebuilders, having made a concerted push into domestic cyclical businesses over the last year on the back of a bullish outlook on the post-Brexit UK economy.
Last month he doubled his holding in housebuilder Crest Nicholson after ramping up his stake in the FTSE 250 firm from 5.21% to 10.34%, bringing the number of shares owned to just under 256 million.
The star manager’s flagship UK Equity Income fund holds Barratt Developments and Taylor Wimpey in its top 10 as well as Bovis and Watkin Jones. Woodford’s Income Focus fund holds all of these stocks as well as Redrow and Countryside Properties.
Revenues tripled
Kerrigan Procter, chief executive of Legal & General Capital, described CALA Homes as a growing business “which we know and understand well”.
“It has a strong management team with proven experience of managing a housebuilding business across business cycles, and has delivered great returns for shareholders since its acquisition in 2013, having tripled in revenue during this time.
“Legal & General has valued the contributions of Patron over the past years and is pleased to have successfully grown the business together.”
Alan Brown, chief executive of CALA Homes, said Legal & General’s investment marks the start of a new chapter for CALA Homes and is an endorsement of their growth potential from one of the UK’s “most highly-respected, blue-chip investors”.
